A fixed income-derived framework that replaces IRR with a duration-consistent forward yield — enabling risk-neutral performance measurement, time transferability, and aggregation-consistent index construction for private capital.
The Internal Rate of Return has been the dominant performance metric in private capital for decades. It solves a nonlinear discounting equation, implicitly assuming reinvestment of interim distributions at the IRR itself — a circular, unrealistic assumption that prevents meaningful cross-asset comparison.
PME measures introduce external market discounting but do not produce time-weighted returns consistent with other asset classes. No existing measure resolves the three structural challenges of private capital: risk-neutrality, time transferability, and aggregation-consistent indexing.
DARC applies Macaulay duration — the weighted average time of a financial transaction — to private fund contributions, distributions, and NAVs. Each cash flow stream is replaced with a single equivalent bullet payment located at its respective duration. The forward yield between the two bullets is DARC.
DARC operates within the arbitrage-free term structure theory of Heath, Jarrow and Morton. It uses an exogenous risk-free discount curve — not its own rate — decoupling performance measurement from reinvestment assumptions entirely. The result is a compounded forward yield over the net duration interval: the constant annualised rate at which the contribution bullet must grow to equal the distribution bullet.
DARC enables arbitrage-free yield transfer along the term structure — a capability absent from all existing private capital performance measures. Two funds with different duration profiles can be compared at any common horizon without distorting their economic content.
Undrawn commitments are treated as a synthetic risk-free position, directly solving the problem of measuring returns on partially deployed capital. Investors are exposed to the full commitment from inception — DARC accounts for this explicitly.
DARC is aggregation-consistent in present-value space — the structural requirement for index construction. The aggregated DARC is derived from pooled bullets, not from averaging individual fund rates. This property no other private capital measure possesses.
The traditional J-Curve captures the early negative returns of private fund investing followed by eventual gains. DARC replaces this with the S-Curve: a more accurate model that incorporates the inflection point — the duration — where increasing marginal returns plateau and then decline.
The S-Curve enables daily NAV monitoring through statistical estimation of expected valuations and probabilistic adjustment of reported figures — without discarding accounting data. Real-time fair valuation monitoring becomes structurally possible for the first time.